FAE · ASIC Financial Adviser Exam
Lesson 2 of 3 in Best interests duty and remuneration rules
What counts as conflicted remuneration, who must not give or accept it, the exclusions, the volume presumption, the other banned fees, and the caps, clawback and consent rules for life risk insurance commissions.
Financial advice regulatory and legal obligations10 min read9 sections
Checked against: Corporations Act 2001 (Cth), compilation No. 149 (19 Sep 2026): ss963A, 963B, 963BA, 963BB, 963C, 963E, 963F, 963G, 963H, 963J, 963K, 963L, 964, 964A, 964D, 964E, 964F, 964G, 965, 1708C-1708E, and endnote commencement details for the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 (No. 67, 2024: Sch 1 items 8-92 from 10 July 2024, items 93-101 from 9 July 2025); Corporations Regulations 2001, compilation No. 214 (1 Sep 2026): regs 7.7A.12EA, 7.7A.12EB, 7.7A.12EC, 7.7A.13, 7.7A.14, 7.7A.17, 7.8.11A; ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (F2017L00636; Federal Register shows it in force with no amending instruments, checked 25 Oct 2026): ss4, 5, 6; ASIC RG 246 Conflicted and other banned remuneration (issued 21 November 2024, updated January 2025 and April 2026): RG 246.5-246.26, 246.39-246.101; ASIC INFO 292 FAQs: Informed consents for insurance commissions (updated September 2025); ASIC DBFO package web page (checked 25 Oct 2026); ASIC Financial adviser exam: Exam preparation guidance v6.0 (September 2026).. Independent prep, not endorsed by ASIC.
This lesson serves the learning outcome in ASIC's Exam preparation guidance v6.0 (September 2026) on applying Chapter 7 of the Corporations Act to scenarios to identify provider obligations and breaches, and the outcome on legal requirements for both the individual and the licensee. The reading list names Part 7.7A, RG 246 and ASIC Corporations (Life Insurance Commissions) Instrument 2017/510.
ASIC supplies statutory extracts with questions, so the work is classification and simple arithmetic. A scenario asks you to decide whether a payment is conflicted remuneration, which exclusion (if any) applies, who breaches the ban, how much commission is allowed and how much is clawed back. Our practice questions drill each of those calls.
A benefit is conflicted remuneration if, because of its nature or the circumstances in which it is given, it could reasonably be expected to influence the products recommended or the advice given to retail clients, and it is not given by the retail client (s963A(1)). Causing or authorising a benefit counts as giving it (s963A(2)). ASIC looks at substance, not labels (RG 246.21, 246.25).
| Who | Rule | Source |
|---|---|---|
| Licensee | Must not accept; also liable when a non-authorised representative accepts; must take reasonable steps so representatives do not accept | ss963E, 963F |
| Authorised representative | Must not accept, unless it reasonably relied on the licensee's information about the benefit | s963G |
| Employee or other representative |
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Answer each one before you tap to see the answer and why. All are from the practice bank.
Yasmin Darwish, 46, invests A$300,000 through her adviser, Patrick Moran: A$200,000 of her own savings and A$100,000 drawn from a margin loan that Patrick arranged. Patrick's licensee charges an ongoing advice fee of 1% a year on funds invested. The asset-based fee may be charged on…
Answer: B. A$200,000
Answer: A$200,000. An asset-based fee cannot be charged on a borrowed amount, so only Yasmin's own savings can be the base.Working:1. A$300,000 invested less A$100,000 borrowed = A$200,000 fee base.2. 1% of A$200,000 = A$2,000 a year.
| Must not accept, except where the employer is liable for giving it |
| s963H |
| Employer | Must not give employees conflicted remuneration for their work | s963J |
| Product issuer or seller | Must not give it to a licensee or representative | s963K |
Volume-based benefits are presumed conflicted until the contrary is proved (s963L), which puts the onus on the person defending the benefit (RG 246.17). Schemes designed to avoid Part 7.7A are themselves banned (s965).
Case study FAE-C35, question 1 of 4: Simone's life insurance commission. Simone Achterberg, 41, is a single mother of two children aged 9 and 12, living in Canberra. She earns A$105,000 a year as a policy officer and has a A$390,000 mortgage on her townhouse. She has A$95,000 in super, A$15,000 in savings and no other debts. Her children's father lives overseas and pays no regular support. She holds default death cover of A$180,000 in her super fund and has no other insurance. Simone asks adviser Jared Kemp, an authorised representative of Northwind Advisory, to review her insurance because she worries about what would happen to the children if she died or became disabled. Jared recommends a retail life and TPD policy held outside super with A$900,000 of cover and a first-year premium of A$2,400. The insurer will pay Northwind an upfront commission of 60% of the first-year premium and 20% of the premium in later years. Jared's informed consent form lists the insurer, the commission rates and the services he will provide, but it does not mention that the consent cannot be withdrawn. Simone signs the consent after the policy has been issued, because 'the paperwork was running late'. Jared has not yet told her what to do with her default cover. At the SOA meeting, Simone asks Jared how much Northwind will be paid in the first year and whether that amount is allowed. The upfront commission, and its position under ASIC's acceptable benefit ratio, is…
Answer: D. A$1,440, within the 60% cap for the year of issue
Answer: A$1,440, within the 60% cap for the year of issue. The rate equals ASIC's 60% acceptable benefit ratio for the year of issue.Working:1. Upfront commission: 60% × A$2,400 = A$1,440.2. Cap: 60% × A$2,400 = A$1,440, so the commission is at the cap, not over it.Why not the others:• A$1,920, within an 80% cap that applies in the year of issue: A$1,920 is an 80% rate, which was only a transitional cap for policies issued in 2018 and is above the current 60% cap.• A$480, within the 20% cap for the year of issue: A$480 applies the 20% rate, which is the cap for later years, not the year of issue.• A$1,440, but over the 20% cap that applies…: A$1,440 is not over any cap, because the 20% cap does not apply in the year of issue.Rule: ASIC Instrument 2017/510, made under s963BA(2), sets the acceptable benefit ratio at 60% for the year of issue and 20% for later years; a life risk commission within these ratios, with clawback, is not conflicted remuneration (s963B(1)(b)).Source: ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 ss5, 7 (F2017L00636); Corporations Act 2001 (Cth) ss963B, 963BA (compilation No. 149, 19 Sep 2026)
Case study FAE-C37, question 4 of 5: Platform incentives at Ridgeway. Ridgeway Financial Pty Ltd is an AFS licensee in Brisbane with 40 employed advisers who give personal advice to about 6,000 retail clients. Its advisers currently use three platforms. Larchmont Wrap, a platform operator, offers Ridgeway four things if it makes Larchmont its 'preferred' platform for new clients: free use of Larchmont's portfolio modelling software, which works only with Larchmont's own platform; a A$250 hamper for each adviser at Christmas; a 'partnership payment' of 0.1% a year on all client money that Ridgeway's advisers place on the platform; and a fully paid three-day conference at a resort, with two hours of technical sessions a day. Larchmont's sales manager adds that Ridgeway's head of advice, Craig Boyd, who also advises his own retail clients, would personally receive a bonus equal to 1% of the first year's platform fees from new Ridgeway clients. Craig says, 'As long as we disclose it all in the FSG, we're fine.' The compliance manager, Helen Ng, is less sure. She asks for advice on each item before the board decides, noting that the advisers' clients range from young accumulators to retirees drawing pensions. Standard 3 says: 'You must not advise, refer or act in any other manner where you have a conflict of interest or duty.' Craig tells Helen he will take the personal bonus but 'manage the conflict' by disclosing it to his own clients. Under Standard 3, Craig's plan is BEST described as…
Answer: A. a breach: he would advise while he has a conflict of interest
Answer: A breach: he would advise while he has a conflict of interest. A personal bonus that grows with the platform fees from Ridgeway's new clients gives Craig an interest in steering clients to Larchmont, so advising while he holds it breaches Standard 3.Why not the others:• compliant: disclosing the bonus to his clients manages the conflict: disclosure tells clients about a conflict but does not remove it.• compliant, provided each client consents in writing to the bonus: client consent does not remove the conflict either.• a breach only if he then recommends Larchmont's platform to a client: the breach does not wait for a particular recommendation, because Standard 3 is breached by advising while conflicted.Rule: Standard 3 prohibits advising, referring or acting in any other manner where the adviser has a conflict of interest or duty. The bonus is also presumed to be conflicted remuneration, because its value depends on the business clients place on the platform (s963L).Source: Financial Planners and Advisers Code of Ethics 2019 (F2019L00117), Standard 3; Corporations Act 2001 (Cth) s963L (compilation No. 149, 19 Sep 2026)
